Sundar Pichai-led Google faces ‘Clear and Present Danger’ of falling short in AI
The only thing that matters to CEO Sundar Pichai-led Alphabet Inc. investors is whether it can get artificial intelligence right. That was the message delivered this week as the company's shares tumbled following news that Google's flagship AI product was misfiring. The selloff erased $80 billion in market value in a single day, underscoring the importance investors now place on all things AI.
For a firm with the world's biggest digital advertising business — its operations generated more than $100 billion in cash last year, with a record chunk of that going back to shareholders — the threat is simple: some other company may develop an AI-powered search engine that, as unlikely as it may seem now, makes Google obsolete.
“Alphabet falling behind in AI is a clear and present danger,” said Tom Graff, chief investment officer at Facet. “The downside is so significant for Alphabet that there's really no way to price it in.”
Shares fell 0.2% on Friday. The stock is negative this year, compared with a gain of about 15% for the Bloomberg Magnificent 7 Total Return Index.
Such a scenario would imperil the nearly $200 billion in revenue Google is expected to generate from search this year — a business that Alphabet rides for the bulk of its profits.
Alphabet has been among the most valuable companies in the world for most of the past decade, primarily because of the dominance of its web advertising business. But it's been overtaken this year by Nvidia Corp. — whose rise has made it the poster child for the AI mania that has rearranged the stock market.
While it still dominates search, and the company is hardly in existential danger, missteps in AI marked a stunning setback for a firm known for its technological prowess — raising the question of whether investors can count on Alphabet to stay at the front of the pack.
More than a year after the debut of OpenAI's ChatGPT, Alphabet is still struggling to prove that its technology can compete despite spending heavily in the field for
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